For the fourth time in a year, California law on employee arbitration agreements has shifted again.
As you may recall from prior editions of this newsletter, on January 1, 2020, California enacted Labor Code section 432.6, which prohibits California employers from requiring employees to sign arbitration agreements as a condition of employment. The U.S. Chamber of Commerce and other business groups filed a lawsuit in federal district court challenging this law, contending that it was preempted by the Federal Arbitration Act (FAA). The federal district court issued a preliminary injunction that temporarily blocked enforcement of the law, and the State of California then intervened to appeal the federal district court’s injunction to the Ninth Circuit.
In September 2021, the Ninth Circuit lifted the injunction, which allowed most of Labor Code section 432.6 to go into effect. Shortly thereafter, the U.S. Chamber of Commerce filed a petition asking the Ninth Circuit for a rehearing.
In response, last month the Ninth Circuit withdrew its opinion and will be resetting the matter for rehearing. As such, the federal district court’s preliminary injunction blocking the full enforcement of AB 51 is once again in effect. While the end result remains uncertain pending the rehearing and possible appeal to the U.S. Supreme Court, employers are not currently prohibited from requiring an arbitration agreement as a condition of employment. We recommend that you review your arbitration agreements accordingly.
Related practice team: Labor and Employment